Steve Flagg is the CEO and founder of Supplyframe.
The global supply chain has faced many disruptions and unprecedented crises in recent years. And it’s not just about the supply and demand uncertainty and remix changes prompted by the pandemic. Broader trends like the digitalization of industries, product innovation and increasing product complexity also have contributed to a new normal of heightened supply chain volatility.
This calls on businesses in the electronics supply chain to get ahead of the problem by adopting the shift-left approach. Here’s how and what it can mean for you.
Understand that despite improvement and incentives, significant supply chain risk remains.
In the last 18 months, we’ve swung from firefighting mode, during which organizations that use semiconductors and electronics components to build products struggled to find what they needed amid critical parts shortages, to rethinking how global supply networks are constructed. Over the past three decades, the electronics supply chain saw massive global expansion. But now, there’s growing investment in reshoring, nearshoring and friendshoring fabs and factories. Yet, despite incentives from the CHIPS and Science Act and similar legislation to drive these movements, massive investments in supplier infrastructure may take years to be fully realized.
And although supply for many electronic components is less constrained now than it has been in recent months (our Commodity IQ analysis forecasts a markedly more balanced electronics supply chain in the second half of 2023), sourcing and supply chain teams must prepare for what’s next by aligning with their engineers and designers to keep things light and lean and anticipate specific parts shortages to avoid added costs, time-to-market challenges and manufacturing stoppages, which can result in enormous loss. We estimate that over the last three years, companies lost a total of $1 trillion in revenue due to the global chip shortage.
Stop just reacting and start designing in resilience to get ahead of potential problems.
Despite these massive risks, many companies simply continue to react to supply chain volatility and do their best to adjust to changing conditions like demand mix changes and lead time challenges. But what’s really needed is a fundamental shift in how organizations make decisions. Manufacturers can and should lower their supply chain risk exposure and build their resilience with the shift-left approach.
The shift-left concept originated—and is now well established—in software development. Shifting left is based on the notion that it’s far lower risk to design in quality and fix software bugs in the development process than it is to manage quality after the software is released to the market.
Companies that make aerospace and automotive, consumer electronics, industrial and medical devices, and other products using electronic components can apply the shift-left approach, too. Adopting current intelligence and enabling cross-discipline collaboration empower manufacturers to make the right trade-offs on what components to use at the point of design to lower their risk.
This is critical considering that we also found that 80% of the life cycle cost and risk of new products is locked in during product design and given increasing product complexity. According to WTW’s annual semiconductor survey, “increased product complexity was the biggest factor underlying supply chain risks, named by 31% [of respondents] as a top concern.”
Yet, many manufacturers are blind to the complexity embedded in their supply chains. Their ERP and engineering systems may not have visibility into the new components and suppliers and all the associated risks. That’s a large and growing problem because every time a company has a major new product innovation, it’s designing a new supply chain—and there’s risk in the long tail.
Shift left to control your risk, unburden your engineers and get on the offensive.
Shifting left means building a transformation program to revisit how to design for the supply chain, structural cost and life cycle risk.
To shift left, build a cross-functional team (including representatives from engineering, procurement, operations and commercial teams) that’s empowered to assess the risk of new products in the pipeline. This should include the parts life cycles combined with single-source and multisource risk, manufacturing locations and other key considerations. Many innovators are also building a risk index to measure all new programs based on their unique considerations, key industries and so on.
Look at ways to combine enterprise sources of data (such as from ERP, PLM, CAD, procurement and other enterprise systems) with external sources of supply market intelligence that are harmonized and in near real time. Finally, work with the finance department to improve the accuracy of cost and lead-time variability into assumptions about the product margin and ability to hit target forecast goals.
Shifting left helps companies lower their risk while contending with new product complexity. It does that by setting them up to invest in alternate components and suppliers intentionally upfront. The shift-left approach can also relieve the extreme pressure faced by their engineering teams due to supply chain volatility and project risks. When companies are unable to get the needed electronic components to build existing products, their engineers are forced to dedicate massive amounts of time and effort to redesigning those products.
The need to redesign after a product release keeps engineering teams—and procurement folks who must chase down the parts and sometimes make costly spot buys—on the defensive. That prevents engineers from focusing their time and effort on innovation. And it can have a massive adverse impact on a company’s costs, profitability and ability to bring products to market, especially for organizations in highly regulated industries like aerospace and defense, automotive and medical, in which qualifying new parts and suppliers is a lengthy process.
The electronics supply chain is coming into balance, as our latest Commodity IQ analysis shows. New product design activity and demand in areas such as automotive and industrial segments are robust. But supply chain hot spots that won’t be easily foreseen will continue to emerge.
It’s time for companies to get on the offensive by shifting left.
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